Premature Recovery of GST Demand Before expiry of the limitation period for filing an appeal under Section 107 not valid, department to refund/reverse the amount so recovered: Himachal Pradesh High Court
In the case of M/s Bhawya Enterprises & Ors. v. Assistant Commissioner State Tax & Excise (GST/Allied Taxes) & Anr., the Himachal Pradesh High Court addressed the premature recovery of demanded CGST from an assessee. The court’s decision was in favor of the assessee.
Case Background
The petitions were filed by Bhawya Enterprises and others, who were aggrieved by the recovery of CGST from their accounts before the statutory appeal period had expired. The Assistant Commissioner had issued a demand order under Section 74 of the CGST Act on May 1, 2025, to which the petitioners had three months to file an appeal under Section 107 of the same Act. However, the department recovered the amount within just five days of the demand order without providing any reasons. This premature recovery caused prejudice to the petitioners’ right to appeal the demand. The recovery amount was also more than 10% of the liability set in the order.
A key issue was that despite the recovery, the department’s portal would not accept the appeal because it required a deposit of at least 10% of the demanded amount. The recovered amount was being treated as an “admitted amount” rather than a “disputed amount,” preventing the appeal from being filed. The Assistant Commissioner later admitted that the recovery was made inadvertently.
Court’s Order and Final Takeaways
The High Court noted that the Assistant Commissioner had admitted the mistake of recovering the amount prematurely. As a result, the court ordered the respondent to rectify the error and refund or reverse the recovered amount to the assessee’s account. The court also specified that this refund must include applicable interest. This action was to be completed on or before July 26, 2025.
The court clarified that it was not expressing any opinion on the merit of the original demand order. The petitioners retained the right to file an appeal against the May 1, 2025, demand order if they wished to do so. If an appeal or other statutory remedy is not pursued, the Assistant Commissioner is entitled to recover the amount as per the law. The court disposed of the petitions, as the petitioners’ grievance had been addressed.
Key Takeaways for Social Media:
- Premature Recovery is Unlawful: The court held that recovering a demanded amount before the statutory period for filing an appeal has expired is a mistake and against the law.
- Assessee’s Right to Appeal: Taxpayers have a right to challenge a demand order by filing an appeal under Section 107 of the CGST Act within the prescribed three-month period.
- Departmental Errors: If the department makes an error, such as an inadvertent recovery, it must take appropriate steps to rectify the mistake, including refunding the amount with interest.
- Filing Appeals: The court highlighted the technical issue of the portal not accepting an appeal even after the recovery of more than 10% of the demanded amount, underscoring the need for the department’s systems to properly recognize such recoveries as deposits toward the appeal.
- Court’s Stance on Litigation: The court emphasized that departments should rectify their own mistakes rather than engaging in unnecessary litigation that wastes public resources.
Here is the Section Detailed Provision of Section 107:
Section 107. Appeals to Appellate Authority.-
(1) Any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person.
(2) The Commissioner may, on his own motion, or upon request from the Commissioner of State tax or the Commissioner of Union territory tax, call for and examine the record of any proceedings in which an adjudicating authority has passed any decision or order under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, for the purpose of satisfying himself as to the legality or propriety of the said decision or order and may, by order, direct any officer subordinate to him to apply to the Appellate Authority within six months from the date of communication of the said decision or order for the determination of such points arising out of the said decision or order as may be specified by the Commissioner in his order.
(3) Where, in pursuance of an order under sub-section (2), the authorised officer makes an application to the Appellate Authority, such application shall be dealt with by the Appellate Authority as if it were an appeal made against the decision or order of the adjudicating authority and such authorised officer were an appellant and the provisions of this Act relating to appeals shall apply to such application.
(4) The Appellate Authority may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of three months or six months, as the case may be, allow it to be presented within a further period of one month.
(5) Every appeal under this section shall be in such form and shall be verified in such manner as may be prescribed.
(6) No appeal shall be filed under sub-section (1), unless the appellant has paid-
(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and
(b) a sum equal to ten per cent. of the remaining amount of tax in dispute arising from the said order, subject to a maximum of twenty crore rupees, in relation to which the appeal has been filed.
Provided that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to ten per cent. of the said penalty has been paid by the appellant.
(7) Where the appellant has paid the amount under sub-section (6), the recovery proceedings for the balance amount shall be deemed to be stayed.
(8) The Appellate Authority shall give an opportunity to the appellant of being heard.
(9) The Appellate Authority may, if sufficient cause is shown at any stage of hearing of an appeal, grant time to the parties or any of them and adjourn the hearing of the appeal for reasons to be recorded in writing:
Provided that no such adjournment shall be granted more than three times to a party during hearing of the appeal.
(10) The Appellate Authority may, at the time of hearing of an appeal, allow an appellant to add any ground of appeal not specified in the grounds of appeal, if it is satisfied that the omission of that ground from the grounds of appeal was not wilful or unreasonable.
(11) The Appellate Authority shall, after making such further inquiry as may be necessary, pass such order, as it thinks just and proper, confirming, modifying or annulling the decision or order appealed against but shall not refer the case back to the adjudicating authority that passed the said decision or order:
Provided that an order enhancing any fee or penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund or input tax credit shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order:
Provided further that where the Appellate Authority is of the opinion that any tax has not been paid or short-paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, no order requiring the appellant to pay such tax or input tax credit shall be passed unless the appellant is given notice to show cause against the proposed order and the order is passed within the time limit specified under section 73 or section 74 or section 74A.
(12) The order of the Appellate Authority disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for such decision.
(13) The Appellate Authority shall, where it is possible to do so, hear and decide every appeal within a period of one year from the date on which it is filed:
Provided that where the issuance of order is stayed by an order of a court or Tribunal, the period of such stay shall be excluded in computing the period of one year.
(14) On disposal of the appeal, the Appellate Authority shall communicate the order passed by it to the appellant, respondent and to the adjudicating authority.
(15) A copy of the order passed by the Appellate Authority shall also be sent to the jurisdictional Commissioner or the authority designated by him in this behalf and the jurisdictional Commissioner of State tax or Commissioner of Union Territory Tax or an authority designated by him in this behalf.
(16) Every order passed under this section shall, subject to the provisions of section 108 or section 113 or section 117 or section 118 be final and binding on the parties.
